In June, 1993, Cuba
decided to privatize telecommunication, and invited proposals for joint
venture partners. In June, 1994 the Monterey, Mexico holding company Grupo
Domos Internacional (Domos), through their subsidiary CITEL (Corporacion
Interamericana de Telecomunicaciones), agreed to purchase a 49% interest
in the Cuban phone system for a reported $1.5 billion (57).
The Empresa de Telecomunicaciones del Cuba, S. A. (ETECSA) was separated
from the Ministry of Telecommunications, and established as a private
joint venture. The Ministry regulates the phone system and sets rates,
so one can assume there are close ties between them and ETECSA.

Progression

Billed as the first
large-scale privatization in Cuba since the revolution, the agreement
was announced during a one-day trip to Cuba by then Mexican President
Salinas. In April, 1995, Domos announced "completion" of the purchase,
and the sale of 25% of their interest to STET International Netherlands,
N. V., a wholly-owned subsidiary of the Italian State Telecommunication
Company for $291.2 million. ETECSA is jointly managed with four Cuban
Vice Presidents, three Mexican, and one Italian.

Domos is seeking further
equity investment to reduce their share of ETECSA to 25%. According to
Domos, ETECSA has a concession for 25 years (the first 12 on an exclusive
basis) with two possible 12-year extensions to provide basic national,
domestic long distance, and international telecommunication services,
data transmission, telex, public telephone, trunked radio communication,
subscription TV, paging, and other value-added services (all but cellular
telephony). The agreement "valued" ETECSA at $1.442 billion, but promised
investment "on the order of" $1.5 billion, including cancellation of Cuban
debt to Mexico of $300 million. Domos says they will invest an additional
$700 million in the next by 2003 for expansion and modernization of telecommunications,
like the digitization of the network, refurbishing 200,000 existing lines,
and expanding the network to a total of a million lines. The goal is to
have 11 lines per 100 people (20 in Havana) by 2003. Estimates state that
ETECSA already handles 20,000 international calls averaging 12 minutes
daily (58).

An ETECSA official
stated that there were plans for some renovation with digital switches
in Havana, and that $3 million had been allocated for a 64kbps X.25 network.
The choice of X.25 instead of frame relay was the result of a lack of
technical expertise. He also stated that generally nothing had changed
within the company. There is still a lack of funds for investment in modern
technical infrastructure, and no competitive approach. Top management
is not market oriented. They are conservative, and trying to maintain
the current voice infrastructure, rather than starting over from scratch
in the data communication business with a market orientation (59).

In addition, a cloud
hangs over the Domos investment. ETECSA has inherited assets of the nationalized
Cuban Telephone Company, an ITT subsidiary, and ITT has an outstanding
claim for $131 million against the Cuban Government (60).
Domos received a warning from the U. S. shortly after the passing of the
Cuban Liberty and Democratic Solidarity Act, and this may give them second
thoughts and further hamper their effort to raise capital or find other
equity investors.

Summary

To summarize, the
internal Cuban telephone infrastructure is obsolete and deteriorating.
While investment has been promised, the details are not specified, and
Domos appears to be having difficulty making good on their promises. For
some time, voice and data communication within Cuba will continue to be
poor, and there may be opportunity for further investment.